• Rachana Kadikar

World Bank - Important Concepts One Day At a Time

What is the World Bank?

The World Bank is an international organization that aids developing countries through not only financial aid but also through advice and research. It works with goals to end severe global poverty and promote global prosperity by supplying governments with low-interest loans, zero-interest credits, and grants to support economic development. The World Bank is funded through the sale of bonds.


The World Bank comprises two primary organizations, and five overall World Bank Group organizations:

  1. International Bank for Reconstruction and Development (IBRD) - Loans money through loans, credits, and grants to creditworthy low/middle-income countries.

  2. International Development Association (IDA) - Supplies zero-interest credits to the low-income countries.

  3. International Finance Corporation (IFC) - Invests, advises, and manages assets for companies and governments around the world to help developing countries grow.

  4. The Multilateral Investment Guarantee Agency (MIGA) - Insures investors against political risks or instabilities in a country.

  5. The International Centre for the Settlement of Investment Disputes (ICSID) - Settles any international investment disputes (between countries or investors).

Historical Role:

The World Bank was created at the Bretton Woods Conference in post-World War 2 1944, with a goal of helping European and Asian countries with rebuilding. Since then, it has expanded to other developing countries like India on reconstruction projects.


However, there have been controversies in the past because of countries using their loans to prevent debt defaults due to overspending and borrowing. Despite the backing of the World Bank, many countries experienced hyperinflation due to the devaluation of their currencies. The World Bank responded with requirements that borrowing countries had to cut spending and support their respective currencies, which unfortunately led to recessions (somewhat because of the decrease in net exports, which consequently leads to a decrease in aggregate demand).


Current Role

In the last fiscal year of 2020, the World Bank gave out over $27 million in loans through the IBRD, over $22 million in interest-free loans/credits, and almost $8 million in grants. The current President of the World Bank is David Malpass, and the institution is headquartered in Washington D.C.


With the goal of reducing global poverty, the World Bank is currently focusing on increasing growth, fund reconstructing projects in post-war countries, climate change, AIDS, promotion of open trade, etc.


It also provides free reports and indicators online, including on climate change, life expectancy, urban development/infrastructure, economic policy, demographics, and much more.


Sources

https://www.thebalance.com/the-purpose-of-the-world-bank-3306119

https://www.investopedia.com/terms/w/worldbank.asp